Tag Archives: sovereign default

Labor’s $2.4 Billion Budget Spray

6 May

Thought $2.2 billion more debt this week was impressive?

The Labor party’s just getting started.

The AOFM has just announced next week’s Australian sovereign debt auctions.

A $600 million T-bond auction on Wednesday – to celebrate the myth-making record-deficit Budget Speech the night before, no doubt.

$1.2 billion (2 x $600 million) in T-note auctions on Thursday.

And another $600 million T-bond auction on Friday.

Labor’s $2.4 Billion Budget Spray.

How much more Interest-on-debt must we pay?

And how much will the “Estimates” and “Projections” for Interest-on-debt made in last year’s Budget be .. revised .. in this year’s Budget?

MYEFO 2010-11, Appendix B, Note 10: Interest Expense

According to their own “Estimate” just for this year 2010-11, we’re paying $1,201,712 ($1.2 million) per hour in Interest-on-debt.

Swan Admits Borrowing $100m-a-day

26 Jul

From the ABC:

Federal Treasurer Wayne Swan has conceded the Opposition is correct when it claims Labor is borrowing $100 million a day to pay back Government debt.

Of course, it takes only a few seconds to keep tabs on Labor’s borrowings.

Just visit the Australian Office of Financial Management (“AOFM”) website to see the current total borrowings – listed as $150.533 million presently.

Don’t forget to add to this total, the amount listed at each link under the “Recent Tender Results” title, on the right hand side of the page. These are the extra amounts borrowed last week, but not yet added to the total.  So that’s another $1,800 million in the past week, giving us a grand total of $152.133 million borrowed up till last weekend.

Then, to see how much the Government plans to borrow in the next week, click on the “Forthcoming tenders” link, also on the right hand side of the AOFM home page. As you can see, on Thursday and Friday this week, the Labor Government will borrow a total of another $1,000 million.

Gottliebsen: In The Eye Of GFC Storm

30 Jun

Highly respected business commentator Robert Gottliebsen appears to agree today with what Barnaby Joyce has been saying since October last year – that the GFC is far from over.

From Business Spectator:

Despite a late US Dow index rally, last night was among the more serious sharemarket falls we have experienced since global financial crisis plunged markets in 2009.

We are well above the dismally low levels witnessed on equities markets during the crisis, but last night you could see fear in almost every corner of the world. The forces that are behind each of the fears are probably manageable, but when they occur together, as what happened last night, they triggered waves of selling, including a savaging of the Australian dollar.

And of course Gillard’s mining tax dithering is rekindling global doubts about the sovereign risk of this country which threatens to put Australia and our high house prices in the eye of the storm.

And for most Australians, the global wave of selling will be reflected in our share prices levels at June 30, which means that the value of superannuation funds will be hit on balance day. Many retirees will have their income reduced for the year ahead…

Clearly China is slowing much more rapidly than expected, and as a result the bad property loans that are in its banking portfolios will weigh down future growth.

In the past China has always managed these issues and I think it will do it again, but the markets fear there will be much more pain than had been anticipated.

Meanwhile, in Europe the big banks have been playing the stupid game of borrowing from depositors and then investing in the sovereign debts of European countries that can’t pay.

Tomorrow the banks are supposed to repay €442 billion in emergency loans but they almost certainly will have to be bailed out again. Fears of bank collapses are rife. On top of this dire outlook, Europe’s austerity measures will bring on recessions in countries ranging from Greece to the UK which will make it even harder for the banks. And the strikes in Greece will be repeated in many countries, which could make the spending cuts impossible to deliver.

In the US they are helped because in a crisis money flows to the world currency, so the US dollar rises. Nevertheless, there are still chronic housing problems so consumer confidence is depressed and the US economy is still living on the old stimulus packages. Accordingly Wall Street’s earnings estimates look too optimistic.

Barnaby is right.

Complete And Definitive Guide To The Sovereign Debt Crisis

30 Jun

Professor Niall Ferguson, of the acclaimed book and ABC documentary series The Ascent of Money, has recently published a brilliant guide to the global sovereign debt crisis.  Click here to read it.

Back in February, Professor Ferguson had this to say in the Financial Times:

… it would be a grave mistake to assume that the sovereign debt crisis that is unfolding will remain confined to the weaker eurozone economies. For this is more than just a Mediterranean problem with a farmyard acronym. It is a fiscal crisis of the western world. Its ramifications are far more profound than most investors currently appreciate…

BIS: Global Economy “Vastly Worse” Than In GFC

29 Jun

The latest report from the Bank of International Settlements (BIS) – the central bank to the central banks – warns that the global financial system is in a “vastly worse” position than 3 years ago.

From the Associated Press:

An organization bringing together the world’s major central banks warned Monday that the global economy risks a replay of the 2008-2009 financial crisis, with massive public debt in Europe and the United States replacing the private debt that fueled the credit crunch two years ago.

“A shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009,” the Basel, Switzerland-based organization said in its 206-page annual report.

In a stark warning to governments to clean up their finances, the central bankers noted that “macroeconomic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis.”

The report recommended winding down stimulus packages, raising interest rates in the long term and forcing through reforms of the financial system to prevent sudden shocks from causing market-wide collapse as they did two years ago.

46 US States In Debt Crisis

29 Jun

46 out of 50 US state governments are now technically bankrupt.  To understand how bad that is for the global economy – including Australia – consider the fact that California alone has an economy that is larger than that of Russia.

From Bloomberg:

California, tied with Illinois for the lowest credit rating of any state, is diverting a rising portion of tax revenue to service debt, Bloomberg Markets magazine reports in its August issue.

Far from rebounding, the Golden State, with a $1.8 trillion economy that’s larger than Russia’s, is sinking deeper into its financial funk. And it’s not alone.

Even as the U.S. appears to be on the mend — gross domestic product has climbed three straight quarters — finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution.

State budget woes are a worsening drag on growth as the federal government tries to wean the economy from two years of extraordinary support. By Jan. 1, funds from the $787 billion federal stimulus bill will dry up. That money from Washington has helped cushion state budgets as tax revenue has plunged.

State leaders won’t be able to ride out this cycle the way they have in the past. The budget holes are too large.

What will the US do when nearly every state government is facing Greek-style deficits?

According to an RBS note to its clients, prepare for unprecedented money printing.

From the UK’s Telegraph:

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on “monster” quantitative easing (QE)”.

We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable,” he said in a note to investors.

Societe Generale’s uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the “stinking fiscal mess” across the developed world. “The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant,” he said.

Barnaby Joyce began warning about a bigger GFC in October last year. No one wanted to listen.

He was roundly ridiculed by the “experts” – such as the genius academic who designed the controversial RSPT, Treasury secretary Ken Henry – for suggesting the possibility that the USA could default on its massive debts.

The simple fact is this.  The USA is defaulting on its debts.

Printing money (euphemistically called “Quantitative Easing”) is technically a form of sovereign default.  When you cannot pay your debts, printing money devalues your currency, and makes it easier to pay back your debts.

It also means high inflation.  Possibly hyperinflation.  Think Weimar Germany in the 1920’s.  Or Zimbabwe today.

Barnaby is right.

Europe Faces Gravest Challenge Since WWII

17 May

From AAP (via The Australian):

Warnings that Europe faces its gravest challenge since World War II and that the “contagion” from troubled states such as Greece could quickly spread have heightened anxiety in global markets after a steep plunge on Friday reversed much of the week’s gains.

The optimism that followed last week’s E750 billion ($1.05 trillion) European bailout evaporated late on Friday, with markets across the continent plunging and Wall Street closing sharply lower.

The euro tripped to its lowest level against the US dollar in 18 months on Friday on fears of years of weak economic growth in the 16-nation European bloc. The euro is at a record low against the Australian dollar, buying just $1.3974, down from more than $2 early last year.

The euro was not helped by comments by US President Barack Obama’s top economic adviser Paul Volcker, who spoke on Friday of the potential “disintegration” of the 16 nations that share the euro currency. And Paris has had to deny reports that President Nicolas Sarkozy threatened to pull France out of the euro to force German Chancellor Angela Merkel to bail out Greece.

European Central Bank president Jean-Claude Trichet at the weekend called for more action by euro-zone governments to improve fiscal governance.

“We are now experiencing extreme tensions,” he said in an interview with Germany’s Der Spiegel magazine. “In the market, there is always a danger of contagion — like the contagion we saw among the private institutions in 2008.”

And from Business Spectator:

Yesterday, Angela Merkel, German chancellor, warned that the $1 trillion rescue package had only bought Europe time, and that further steps were needed to address the differences in competitiveness and budget deficits between the member countries.

In a speech to the annual German trade union conference, Merkel emphasised that speculation against the euro was only possible because of the huge differences in economic strength and the levels of debt between individual eurozone members.

Meanwhile, the head of the European Central Bank, Jean-Claude Trichet, emphasised that it was urgent that eurozone countries rectify their budget deficits.

In an interview with the German magazine, Der Spiegel, Trichet said that the world was now facing “the most difficult situation since the Second World War – perhaps even since the First World War. We have experienced – and are experiencing – truly dramatic times.”

He said that after the events of 2007-8, “private institutions and markets were about to collapse completely”. That triggered governments to step in with very bold and comprehensive financial support.

The problem was that markets were now questioning whether some governments could afford to repay their debts.

Click here for 9 simple charts that show why a collapse of the Eurozone is inevitable.

BIS: Western World Spending Its Way To Disaster

13 May

From the UK’s Globe and Mail:

The Swiss-based Bank of International Settlements (BIS), the oldest international financial institution in the world, has functioned as the central bank of central bankers for 80 years. In a working paper written by three senior staff economists (“The future of public debt: prospects and implications”), released in March, BIS warns that Greece isn’t the only Western economy with hazard lights flashing.

Indeed, it names 11 more: Austria, France, Germany, Ireland, Italy, Japan, the Netherlands, Portugal, Spain, Britain – and the United States. Without “drastic measures,” BIS says, all of these countries will hit a wall of debt.

When the senior economists at BIS warn 12 of the richest countries on Earth that they must take drastic action to reduce debt, you know that it’s time to check the air bags. The only thing you don’t know, that you need to know, is the precise time of the crash. The lesson is already obvious: Governments can’t drive recklessly, use only the accelerator for braking and not eventually crash.

By the end of 2011, the BIS economists calculate, U.S. government debt will have risen from 62 per cent of GDP in 2007, not quite three years ago, to 100 per cent. Britain’s debt will have risen from 47 per cent of GDP to 94 per cent. Italy’s debt will have risen from 112 per cent of GDP to 130 per cent. All together, the public debt of the 12 countries will have risen from 73 per cent of combined GDP to 105 per cent.

At this debt level, the risk of sovereign default rises rapidly. But the BIS analysis says this unprecedented debt level will itself increase “precipitously” in coming years. It will not, as each of these countries separately insists, fall.

For one thing, the BIS report says, countries that proclaim spending restraint generally do not actually do it. Normally, they hold the line – temporarily. Normally, they slow the rate of increase – temporarily. All pronouncements aside, the BIS report says, these 12 countries have made such grandiose spending commitments that they are predestined for higher debt. The U.S. debt-GDP ratio will hit 150 per cent in the next decade. Britain’s debt-GDP ratio will hit 200 per cent. Japan’s debt-GDP ratio will hit 300 per cent.

These increases in debt, the BIS report says, are untenable. The financial markets, of course, won’t permit them. The only mystery, the BIS report says, is exactly when the markets will intervene. History shows, the report says, that when the markets do rebel, they often do so instantaneously and decisively – often without much warning.

9 Charts Show Why Eurozone Collapse Is Inevitable

10 May

Here are some simple charts that demonstrate why anything and everything that the EU, ECB and/or the IMF can do now, is simply to delay the inevitable disintegration of the Eurozone.

From Der Spiegel: (click on images to enlarge)

And finally, one more chart showing how interconnected (thus vulnerable) the Eurozone countries are, due to the enormous sums of money owed by member countries just to each other: (click on image to enlarge)

Eurozone Faces Bankruptcy, Disintegration

10 May

Could the Eurozone go bankrupt? One of Germany’s leading newspapers believes so.

From an excellent major article in Der Spiegel:

Huge National Debts Could Push Eurozone Into Bankruptcy

Greece is only the beginning. The world’s leading economies have long lived beyond their means, and the financial crisis caused government debt to swell dramatically. Now the bill is coming due, but not all countries will be able to pay it.

The euro zone is pinning its hopes on (IMF negotiator) Thomsen and his team. His goal is to achieve what Europe’s politicians are not confident they can do on their own, namely to bring discipline to a country that, through manipulation and financial inefficiency, has plunged the European single currency into its worst-ever crisis.

If the emergency surgery isn’t successful, there will be much more at stake than the fate of the euro. Indeed, Europe could begin to erode politically as a result. The historic project of a united continent, promoted by an entire generation of politicians, could suffer irreparable damage, and European integration would suffer a serious setback — perhaps even permanently.

And the global financial world would be faced with a new Lehman Brothers, the American investment bank that collapsed in September 2008, taking the global economy to the brink of the abyss. It was only through massive government bailout packages that a collapse of the entire financial system was averted at the time.

A similar scenario could unfold once again, except that this time it would be happening at a higher level, on the meta-level of exorbitant government debt. This fear has had Europe’s politicians worried for weeks, but their crisis management efforts have failed. For months, they have been unable to contain the Greek crisis.

There are, in fact, striking similarities to the Lehman bankruptcy. This isn’t exactly surprising. The financial crisis isn’t over by a long shot, but has only entered a new phase. Today, the world is no longer threatened by the debts of banks but by the debts of governments, including debts which were run up rescuing banks just a year ago.

The banking crisis has turned into a crisis of entire nations, and the subprime mortgage bubble into a government debt bubble. This is why precisely the same questions are being asked today, now that entire countries are at risk of collapse, as were being asked in the fall of 2008 when the banks were on the brink: How can the calamity be prevented without laying the ground for an even bigger disaster? Can a crisis based on debt be solved with even more debt? And who will actually rescue the rescuers in the end, the ones who overreached?

So, the GFC is ‘over’, is it Ken?

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